As a result of headwinds from interest rates and a faltering post-Covid recovery in China, economy in Australia declined at an annual pace during the June quarter. The growth rate was negative for each individual for the third consecutive quarter.
The nation’s gross domestic product experienced an increase of 2.1% from April through June compared to the same three-month period a year earlier. According to a report that the Australian Bureau of Statistics released on Wednesday, this was in stark contrast to the revised annual rate of 2.4% that was seen in the March quarter.
The GDP increased by 0.4% quarterly during June, which is comparable to the previous quarter’s revised growth rate of 0.4%.
Economists had anticipated that annual GDP growth would come in at 1.8% and quarterly growth at 0.4%.
The estimates for GDP were boosted due to the rapid expansion in the population of Australia. If we take that variable out of the equation, we see that per-capita growth dropped by 0.3% in the June quarter for the third quarter in a row, which is consistent with a per-capita recession on a technical level.
The publication of the national accounts data takes place just one day after the Reserve Bank of Australia has set its interest rate at its current level of 4.1% for the third month in a row. According to the central bank, recent data are consistent with inflation reverting to its goal range of 2–3% “with output and employment continuing to grow.”
The RBA stated on Tuesday that many households are experiencing a “painful squeeze” due to the 12 interest rate increases that will take place between May 2022 and June 2023. According to the statement made by the bank, one of the most significant unknowns for Australia and the world as a whole was China’s sluggish economic recovery this year, partly brought on by the bursting of a bubble in the value of property prices.
The national accounts did not provoke a significant response from the market right away. The value of the Australian dollar fell to 63.59 US cents, marking a new low for the Australian currency in the last 10 months, before recovering to 63.8 US cents. Since that time, a day in which stocks were already trading down roughly 0.4% overall have seen those losses quadruple.
The most significant factor in the improvement of the data for the June quarter was the increase in net exports, which was driven in large part by the 12.1% increase in service exports. The number of overseas students also increased during this time, which contributed to an increase in the demand for inbound travel services, which surged by 18.5%.
According to the ABS, a rise in the amount of money invested by businesses helped to compensate for a fall in the amount of stock held by private corporations.
The expansion of the economy in the 12 months leading up to June was 3.4%, which was slightly lower than the 3.7% seen in 2021-22. When compared to those years, 2019–20 and 2020–21, the most disruptive years caused by Covid-19, saw a contraction of 0.1% and 2.1% respectively.
“We enter this period of uncertainty from an enviable position,” the federal treasurer, Jim Chalmers, said. “While we have been clear and upfront that we expect our economy to slow considerably over the next year, we enter this period of uncertainty from an enviable position.”
“The Australian economy grew faster than most of the major advanced economies through the course of the year to the June quarter 2023,” specifically, “faster than Germany, the United Kingdom, France, Canada, and Italy.”
The year-on-year rate of 2.1% was the weakest since the final three months of 2020, according to economists at Barclays, suggesting “a significant slowdown versus the relatively strong 2022, as headwinds to growth build”.
They said that the economy grew at an annual pace of 2.3% in the first half of 2023, and they estimate that this rate would decline to 0.6% in the second half of the year.
“The decline in discretionary consumption for two straight quarters shows that pent-up demand is no longer a factor driving the Australian economy,” economists Rahul Bajoria and Shreya Sodhani from Barclays said.
They added that “savings have fallen and as migration drives softer income growth – with capacity constraints in the labor market likely easing into the end of the year and 2024 – household consumption will likely further be squeezed.” “Savings have fallen and as migration drives softer income growth – with capacity constraints in the labor market likely easing into the end of the year and 2024,”
According to David Bassanese, chief economist at BetaShares, it is doubtful that the Reserve Bank’s perspective on interest rates will change as a result of the GDP statistics. According to what he mentioned, the next move will most likely be interest rate reductions, beginning around the middle of 2024.
According to Bassanese, “[H]ousehold consumer spending grew by a mere 0.1% in the June quarter, to be up only 1.5% over the past year,” and this was due to the fact that rising borrowing costs lowered demand.
A 5.5% increase in public demand for the quarter helped to shore up the economy as large-scale construction projects in the areas of health care, education, and transportation began to take shape. Nevertheless, according to Bassanese, the convergence of such public works was likely to be contributing to labor and material shortages, “crowding out” dwelling building, and adding to the pressures of inflation.